Ha-Joon Chang — Britain: a nation in decay [or the race to the bottom]

Ha-Joon Chang nails it. The UK problem is Thatcherism aka Neoliberalism, in which the goal is to run permanent trade surpluses by running financial repression domestically, i.e., suppressing worker compensation and benefits by eliminating the welfare state, in order to become more competitive in the global economy. Just like Germany is doing.

In reality, though, the coalition government isn't as stupid or stubborn as it appears. It is sticking to its plan A because spending cuts are not about deficits but about rolling back the welfare state. So no amount of evidence is going to change its position on cuts.
Lost in this cross-wired debate is the issue of the long-term future of the economy. Britain has been finding it difficult to recover from the financial crisis not just because of its austerity policy but also because of its eroding ability to engage in high-productivity activities. This problem is most tellingly manifested in the country's inability to generate a trade surplus despite the huge devaluation of sterling since 2008.

The Guardian
Britain: a nation in decay
Ha-Joon Chang | Professor Economics, Cambridge University
(h/t Kevin Fathi via email)

Unfortunately, Prof. Chang perpetuates the myth about Keynes and the long term when he writes,

John Maynard Keynes once famously said that in the long run we are all dead. But a lot of us have to live for a while yet. A series of short-run policies, whether based on the coalition policy of spending cuts and loose monetary policy or on the opposition policy of increased government spending, isn't going to address the challenges facing the British economy. It is time to think for the long term.

Keynes was actually criticizing the assumption of economic equilibrium being automatically achieved in neoclassical mechanics by the working of the invisible hand absent interventions. Keynes knew, of course, that the neoclassical model is time-independent, and the adjustment could come quickly — or not. Even presuming the correctness of the model, why wait when policy tools are readily available to bring about a return to full employment and optimize output by acting now.